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Business World Jul 07, 2015

The luxury car market in India is undergoing a sea change, and Mercedes-Benz is doing what it takes to be at the top of the game By C. H. Unnikrishnan German luxury-car maker Mercedes-Benz recently celebrated an ‘express’ clearance for its new, expanded Pune factory. The event has given a new meaning to the Modi government’s Make in India campaign. An environmental clearance, required before the plant could go on stream, had been pending for long since the days of the UPA government. The Germans brought it up with a visiting Maharashtra government delegation led by chief minister Devendra Fadnavis, who had casually asked them if they had problems doing business in India. Before anyone could say Jack Robinson, the delegation in Germany galvanised the babu machinery in India into action. Fadnavis radioed Delhi; the central ministry of environment was lobbied, a minor rule was changed, red tape was cut; and it all happened in a day! “A surprised Mercedes India chief Eberhard Kern could not believe it, and said: ‘It does not happen this fast even in Germany’ when he was handed over the emailed clearance certificate at the Stuttgart Mercedes-Benz HQ,” recalled state industry minister Subhash Desai, while delivering the inaugural address at the Mercedes-Benz’s new plant in Chakan near Pune on 11 June. The approval for the expansion was historic. In one of the first such moves, the NDA government did away with the requirement for ‘green clearance’ for industrial units, schools, colleges and hostels measuring 1.5 lakh sq. metres or more. World-class Plant With the addition of the latest plant, the total manufacturing capacity of Mercedes-Benz India will go up to 20,000 cars a year. According to the company, it is the largest for any luxury-car brand in India at present. The Rs 1,000-crore facility is now a part of the German car maker’s global assembly network for sedans and SUVs. The India unit now assembles six of its nine brands, including popular sport utility vehicle GLA. The capacity ramp up by Mercedes in India signifies the high-growth potential of the country’s luxury car market, which had grown at a CAGR of about 25 per cent in the last eight years. It is predicted to touch at least $14.72 billion by the end of 2015 with the country becoming a prime destination for top global brands. The world’s top luxury automakers, including Mercedes, Audi (Volkswagen) and BMW — the German Big 3— have established their strong presence in India and the competition is white hot. Established in 1994, Mercedes-Benz India was a pioneer in India’s luxury car market. Its local manufacturing unit, originally set up in 2009, is spread over 100 acres in Chakan, Maharashtra, and is rated among the top completely knock-down kit assembly plants of Mercedes-Benz globally. The competition in India’s 33,000-unit luxury car market became fiercer last year as the gap between the top two — Audi and Mercedes — narrowed to razor-thin levels. In 2014, Audi sold 11,292 units, compared with Mercedes’ 11,213, while the global leader BMW lagged behind. However, in the first quarter of 2015, Mercedes-Benz pulled ahead with a 40 per cent growth, selling 3,566 units. The company, which has some 73 outlets across 39 Indian cities at present, plans to expand the network to 80 cities this year.<table align="center" border="1" cellpadding="1" cellspacing="1" style="width: 500px;"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/india-strategy-300.jpg" style="width: 438px; height: 312px;"></td></tr></tbody></table>Changing Dynamics India’s luxury car marketing dynamics are rapidly changing. Auto majors that focused on the big city elite club are now expanding their reach to tier-2 and tier-3 cities to tap the rural rich. For instance, Neelkant Shirsat, a medium-scale farmer in Nashik, is a go-getter and owns two utility vehicles — a compact car and an SUV — and adds a trendy brand every harvest season. He, however, never thought of a luxury car until an Audi dealer approached him and offered a glistening model along with an attractive finance scheme. Shirsat was hooked! The trend has changed as the new rich have changed their tastes. The sales of luxury car brands in the country have almost doubled in the last four to five years, growing at a rate of 25 per cent a year. “Luxury cars are no more a taboo in the semi-urban markets, where many could afford them earlier but didn’t buy due to the so-called elite- class-only perception,” says Y. Bijoy Kumar, a motoring expert and former editor of auto magazine BS Motoring. Another new area that is catching up in India’s luxury car market is the sales of pre-owned cars through authorised outlets. Mercedes India head says that his company has recently introduced this segment in its sales offering and it is picking up fast. GLA Rollout Mercedes-Benz’s latest addition to the new local assembly unit — the GLA SUV brands — has set another milestone in the changing dynamics of the luxury car market in the country. This new generation luxury SUV, which almost redefined the segment and created a whole new customer group in the Indian market, has witnessed good consumer demand since its launch last September. “Rolling out our first ever locally-manufactured GLA and commencing production from India’s largest installed luxury car production facility are two very significant accomplishments for Mercedes-Benz in India,” says managing director and chief executive officer Kern. Localisation of the brand helps buyers save about Rs 1.5 to 2.5 lakh on the two varients, company officials say. The locally assembled GLA 200 CDI Style is priced at Rs 31.31 lakh and GLA 200 CDI Sport at Rs 34.25 lakh in India now. “The GLA would be the first of the new generation cars to be rolling out of our plant. The local manufacturing of the GLA and the commencement of production from our new facility, not only makes us ‘future ready’ but also gives us a competitive advantage in the dynamic Indian luxury car market,” says Kern. “Our local production facility has been the backbone of our growth in India,” says Piyush Arora, executive director, Operations, Mercedes-Benz India. “With the sixth model now added to our local production portfolio, we are even better positioned than before to cater to the increasing demand,” adds Arora. The capacity addition in the new Mercedes plant will be carried out in phases. “Last year, we sold 10,200 units and it grew 40 per cent this year so far,” says Kern. “We will not be able to achieve total capacity of 20,000 unit sales this year, but hopefully, if we manage to run at the same pace, it won’t take much time,” he boasts. Kern obviously needs to pump up his confidence. He is aware that competitors Audi and BMW are not exactly sitting idle, and the demand in the luxury car market is not galloping. But if the numbers show up, the new Mercedes plant and its products are ready.    unni@businessworld.in,   @unni_ch (This story was published in BW | Businessworld Issue Dated 27-07-2015)